Item 1.01 Entry Into a Material Definitive Agreement
Second Lien Credit Agreement
On September 1, 2016,
Sears Holdings Corporation (the Company), Sears Roebuck Acceptance Corp. (SRAC) and Kmart Corporation (together with SRAC, the Borrowers) entered into a Second Lien Credit Agreement (the Credit
Agreement) with the Lenders (as defined below) and JPP, LLC, as administrative agent and collateral administrator (the Agent), pursuant to which the Borrowers borrowed $300 million of term loans (the Term Loan).
Mr. Edward S. Lampert, the Companys Chief Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL Investments, Inc., which controls JPP, LLC and JPP II, LLC, the lenders under the Credit
Agreement (the Lenders). The Company expects to use the proceeds of the Term Loan for general corporate purposes.
The maturity date for the
Term Loan is July 20, 2020 and the Term Loan will not amortize. The Credit Agreement includes an accordion feature that allows the Borrowers to seek to obtain from third parties up to $200 million of additional loans under the Credit Agreement
on the same terms as the Term Loan.
The Term Loan will bear interest at a rate equal to, at the election of the Borrowers, either the London Interbank
Offered Rate (LIBOR) (subject to a 1.00% floor) or a specified prime rate (Base Rate), in either case plus an applicable margin. The margin with respect to the Term Loan is 7.50% for LIBOR loans and 6.50% for Base Rate loans.
Pursuant to the Security Agreement (as defined below) the Companys obligations under the Credit Agreement are secured on a pari passu basis with
the Companys obligations under that certain Indenture, dated as of October 12, 2010, by and among the Company, the Company subsidiaries from time to time party thereto and Wilmington Trust, National Association, as successor collateral
agent (Wilmington Trust), pursuant to which the Company issued its 6
5
⁄
8
% Senior
Secured Notes due 2018 (the Notes). The collateral includes inventory, receivables and other related assets of the Company and its subsidiaries which are obligated on the Term Loan and the Notes. The Credit Agreement will be guaranteed
by all domestic subsidiaries of the Company that guarantee the Companys obligations under its existing revolving credit facility.
The Credit
Agreement includes customary representations and warranties, covenants and other undertakings, which representations and warranties, covenants and undertakings are subject to important qualifications and limitations set forth in the Credit
Agreement. The Credit Agreement also contains customary events of default, including (subject to certain materiality thresholds and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty,
and bankruptcy or insolvency proceedings. If there is an event of default, the Lenders may declare all or any portion of the outstanding indebtedness to be immediately due and payable, and exercise any rights they might have under any of the related
facility documents (including against the collateral), subject to the Security Agreement and the Intercreditor Agreement (as defined below).
The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its
entirety by reference to the Credit Agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated by reference herein.
Amendment to
Security Agreement
Also on September 1, 2016, the Company amended that certain Security Agreement, dated as of October 12, 2010 (together
with all exhibits and schedules attached thereto, as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the Security Agreement), among the Company, the subsidiaries of the Company from time to
time party thereto as grantors and Wilmington Trust, to cure certain ambiguities, omissions, defects or inconsistencies in the Security Agreement (the Security Agreement Amendment).
In addition, in connection with the entry into the Credit Agreement, the Agent executed a joinder to the Security Agreement.
The foregoing description of the Security Agreement Amendment does not purport to be complete and is qualified in its entirety by reference to the Security
Agreement Amendment, a copy of which is filed herewith as Exhibit 10.2 and is incorporated by reference herein.
Amendment & Restatement of
Intercreditor Agreement
Also on September 1, 2016, Bank of America, N.A. and Wells Fargo Bank, National Association (as successor to Wells Fargo
Retail Finance, LLC), as co-collateral agents, and Wilmington Trust, National Association, as successor trustee, entered into an amendment and restatement of that certain Intercreditor Agreement, dated as of October 12, 2010 (as amended,
restated, amended and restated, supplemented or otherwise modified from time to time, the Intercreditor Agreement), to, among other things, make certain amendments in connection with the Companys entry into the Credit Agreement and
the security interests granted in connection therewith.
The foregoing description of the Intercreditor Agreement does not purport to be complete and is
qualified in its entirety by reference to the Intercreditor Agreement, a copy of which is filed herewith as Exhibit 10.3 and is incorporated by reference herein.